Why gold is real money

December 12th, 2015

Although many gold buyers readily accept that “gold is real money,” few can explain why gold is real money and why moving away from gold as money to fiat money distorts economic activity. The distortion being a boom followed by a bust, and the size of the distortion being determined by the amount of the fiat money creation.

The essay is posted on Mises.org, the website of The Mises Institute, where Shostack is an Associated Scholar. Mises.org posts essays by learned scholars who understand and can explain Austrian economic theory in ways that laymen can begin to grasp it.

2 Responses to “Why gold is real money”

I like gold. I believe in having gold as a store of value. I wish I could say that “gold is money”, but I can’t say that. It’s not money. Not now. Not yet. It has served as money in the past, and I think it would be a good thing if it served as money in the future. The reason it isn’t money is because our government hasn’t allowed it to serve as money. It has made fiat money “legal tender” and convinced people to accept it.

Basic economic textbooks will tell you that money has the attributes of: acceptability, portability, homogeneity, divisibility, and durability. It’s the first one, “acceptability”, which government action has severely restricted. You can’t go to Wal-Mart or to the gas station and pay with gold or silver. The “medium of exchange” use of gold has been regulated, not quite out of existence, but very severely so. Yes, in private transactions you can sometimes find a person who will accept gold in payment. Some states even allow taxes to be paid in gold. But the standard of what gold is worth, in terms of acceptability as a means of exchange, is still the U.S. dollar. It shouldn’t be that way. It should be the other way around. The economies of the world would be more honest, in my opinion, if gold were money. But because it’s not accepted broadly as a medium of exchange, I have to conclude that gold isn’t (and by that, I mean “doesn’t function”) as money.

Gold is wealth. It’s a great place to store wealth for future generations and to protect against government debasement of currency. Governments like inflation because they don’t have to account to the public for what they take from it, as they have to when they tax. In a famous decision well over a century ago the Supreme Court once wrote, “The power to tax is the power to destroy.” That’s true. But what does that say about the power to increase the money supply by fiat? It’s destruction of the value of money with no accountability to those who use money. If gold were money, governments would have to be more accountable. I think that day may come again. Hopefully, it won’t take a total economic breakdown for it to occur.

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